For those of you who have heard about Tesla's plummeting stock price and wonder what's going on, a quick look at their history might clear things up:
Tesla was not always a crazy unicorn stock. For ten years it just slowly burbled along. Then, for some reason, it exploded at the beginning of the pandemic.
Why? It's something of a mystery. But whatever the reason, it was always bound to burn itself out and eventually return to earth. That's what's happening now, and the timing suggests it most likely has little to do with Elon Musk, Twitter, or a woke backlash. Tesla is just a car company facing increasing competition and investors are finally waking up to that.
"Why? It's something of a mystery."
Not really. They were the only car maker in the EV space. If you wanted an EV, that's where you got it. A lot of people wanted EVs so Tesla was valuable. Now there is competition so it is no longer so valuable. It is also acquiring a reputation for horrible build quality -- dead last in Consumer Reports' reliability rankings. I don't know if that plays a role.
Except that all of this was not only predictable, but predicted. The fact that dozens of other manufacturers were going to be moving into the EV space was widely announced, both by those companies themselves, and outside analysts. Since a stock price, if behaving rationally, approximates the net present value of expected future profits, no one should have piled into Tesla like that.
"The market can remain irrational longer than you can remain solvent."
Indubitably. I'm just saying that no one should have been impressed enough about Tesla's market share to bid the stock up as they did. I suspect that the irrationality was more then just thinking that Tesla was going to sell a lot of cars. My guess is that investors , equally irrationally, assumed that Tesla was also going to spin off a lot of tech breakthroughs.
For some reason I'm not technically educated enough to know, certain market players love volatile stocks, and those players (shorts and optioneers) love Tesla.
The one sane point is that Tesla was the only company with more than a billion in sales per year growing at 50% per year.
The question with growth stocks is how optimistic the market is willing to be?
My view, as an owner of several Tesla products and a shareholder, is that Musk is a supremely immature contrarian, perhaps brilliant, but there is no longer any question about the immaturity. The whole Twitter saga is basically a kindergarten playground argument writ large, and makes about as much sense.
But underlying this are some amazing statistics. Tesla's model Y was the number one selling car, of any kind, in Europe in November.
Compared to other automakers, Tesla is not only the only one making money on each car, but the margins are also amazingly good. It turns out that existing automanufacturers are actually not well placed, at all, to easily transition to EVs. Its actually harder for them then a totally new company.
Large manufacturers are taking some time to get EV manufacturing scaled up but I think they will within a couple of years and, when they do, Tesla's margins will decrease. Tesla will survive butr they need to replace Musk with someone with manufacturing experience and focus on build quality and cost cutting to prosper in the long term,
I noticed a story about a month ago that Tesla had to lower its prices in China due to increasing competition.
Don't forget "momentum investors". They operate on the theory that if a stock has been rising rapidly, it's likely to keep rising rapidly. Of course, a peak eventually arrives but enough momentum investors can drive that peak much higher than it would have been without them.
My buddy's mother makes $50 per hour working on the computer (Personal Computer). She hasn’t had a job for a long, yet this month she earned $11,500 by working just on her computer for 9 hours every day.
Read this article for more details.. https://payathome.blogspot.com/
Several people have won Nobel Memorial Economics prizes by demonstrating the profound effect of irrationality on investment decisions. If you want to see it in action, look no further than the lead up to 2008 and to 1929. Some people indeed did see it and have recently made a shitload of money by short selling at the expense of the vast majority who didn't.
It is just not true that "they were the only car maker in the EV space." There were other electric autos available before the Roadster, and in terms of full production electrics the Nissan Leaf came to market before the Model S.
Yup - the first Nissan Leaf model was introduced in Japan and the US in 2010 with a 73 mile range. IIRC, it really started to take off with the second model offering in 2017 and there were a lot more Leafs running around than Teslas for a while here in Western WA.
Teslas have problems that your Hondas & Toyotas do not.
https://www.businessinsider.com/tesla-driver-watched-in-horror-tesla-crashed-burst-into-flames-2022-12
Piling on to Tesla imperfections without context (you can crash gasoline based cars without them ever, not even once, bursting into flame?) is every bit as dumb as piling on to Tesla's supposed perfections...
The stock price was a PR bubble. I don't know to what extent that was planned, and to what extent it was Elmo winging it, but Tesla played the press like a fine piano. Add in outright cons like the solar roof tiles and the services he's offered government like bullshit excuses to not expand pubic transport, and he ran a masterful media con.
But then he started running his yap in public, at the same time the pressures Kevin identifies come to bear. And Elmo is no Jobs, the media is not playing along with the con anymore, and playacting Revanchist Avenger at Twitter isn't going fix Tesla's quality problems. And I hear it is starting to bleed talent, too...
And that's before you get to having a plan to be competitive with the legacy car companies that still know a thing or two about supply chains and selling the American mythology.
I do think he got very lucky, and is just not very good at this game.
This exactly. It was a pump and dump, and toxicity in meme form. As well as hero worship in meme form. Tesla's stock price bubble was even more transitory than inflation.
As appalling as I find the man, I suspect that Musk is pretty good at running start ups through the investment and development phases. But he has no idea how to lead a mature company that has reached the point of needing to start making money.
I always assumed his plan was to goose the stock price with PR and then sell the company to a car company that needed an EV division instantly, but it seems he muffed the timing on part 2 and has missed his chance as other makers are already well on their way to becoming EV companies.
Exactly. Ford builds EVs, GM builds EVs, Volvo builds EVs, VW, Mercedes, and BMW....
Shouldn't be a big surprise that companies that know how to screw cars together are causing a problem of competition.
Toyota doesn't have much of an electric lineup. Maybe they could buy him out. But that would ruin their reputation for reliability.
According to the Elon true believers, the goal was always to save the planet and in the process drive all the existing automobile manufacturers out of business. Of course, these are the same people saying now is a good time to pick up Tesla stock cheap.
Combination personality cult and speculative bubble. The Tesla true believers are fanatical, but a lot of people just jumped on to enjoy the ride. Elon has no idea what he is good at and what he isn't; of late he keeps leaning into what he is not good at. The bubble was always going to burst at some point, but Elon appears to be doing everything he can to insure it happens sooner rather than later.
Or maybe, just maybe, the rise tracks with profitability: https://bityl.co/GPgA
And the downturn tracks with his first sale of stock since 2016, following a threat to sell 10% of his holdings via a birdsite poll and the start of his erratic behavior on birdsite: https://bityl.co/GPg9
@D_ohrk_e1 -- this is the reason, and its pretty obvious. 2020 was Tesla's first profitable year. Before then, people wondered if Tesla could actually execute their business plan. Once it was clear they could, and they had a sizable lead over their competitors, the stock went up.
Returning to the value it had before it had a profitable quarter is *not* reversion to the mean. It is a disaster.
There are two obvious contributors -- Musk's successful attempt to rebrand Tesla as the first Nazi car since the VW, and increasing competition from companies that build more reliable cars.
"Musk's successful attempt to rebrand Tesla as the first Nazi car since the VW"
+1
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You could turn off your Javascript.
And uninstall Java.
And block pop-ups.
Yes, stock price should reflect profitability. But Tesla’s profits hardly justify a stock price earnings ratio of 190. Of late the market agrees with me on this.
List of companies with higher (trailing) P/E ratios: https://www.marketbeat.com/market-data/high-pe-stocks/
Krugman just wrote about this. There's basically nothing to lock in Tesla's advantage, long term, hence little (nothing?) to justify the company's once lofty share price. It's not like an Apple or a Microsoft—firms that year after year can leverage profits via strong network effects.
https://www.nytimes.com/2022/12/27/opinion/tesla-stock-elon-musk.html
What locks in Tesla’s advantage is the fact that it is years ahead of other manufacturers - especially legacy ICE manufacturers - in manufacturing efficiency. This is why Toyota has to sell 10x as many cars to achieve Tesla’s net income, and why Teslas profit margin dwarfs the ‘competition.’.Look at how many EVs the ‘competition’ actually produces, not how many future models they promise. Tesla does not have to worry about competing with its own ICE cars, which is why all legacy manufacturers are slow walking the conversion to EVs. I own a Tesla, and when I drive my other car, a 1 year old gas SUV, it feels like a Model T. Tesla’s stock has fallen because Elon ‘s dopey Twitter obsession has forced him to sell billions of dollars of Tesla stock, while macro economic issues have affected the Chinese market and depressed the equity markets in general. When the dust settles, Tesla will still have the best EVs and will achieve the best margins in the industry. THAT’s what makes the company valuable.
Tesla has massive advantages of being early. However, it now faces two issues: (1) target market walking away from Tesla b/c of his embrace of conservatives and (2) fast-moving market catching up with BEV fleets.
IDK how much of an effect his trolling will have on inventory, but next month's (Jan 25) annual report is what everyone will be looking at. If the hit is tiny, the stock may still tank because Musk will likely use the report to identify recession as a key driver of its future performance.
Seems to me, all he has to do is shut up. He can't stop. He's lost emotional control and no one is stopping him.
Even with the best cars and best margin in the business, Tesla would still not make enough money to justify the spikes in its valuation. They would have to be the sole car company and the market would have to expand a lot.
Looks like Tesla missed its window to be "the" car company. It's done better than DeLorean and GM's Saturn division. Now will it end up more like a Toyota or Saab or Volvo?
If you're talking about margins on sales, that's only because Tesla was able to get high-end car margins on moderate car. They had a bunch of cool gimmicks (Glass roof! Screen controls! Flush handles!) but now everybody has those, and better quality to boot.
So those margins are going the way of the dodo. Ford can get ridiculous margins on its electrics. Their dealers could charge almost whatever they wanted, and had to be reined in by Ford to keep at the MSRP. They aren't b/c they're about market share right now, and that market share's going to drive down margins for everyone.
Tesla as a car company just doesn't have that much value. Is it as valuable as Toyota? Maybe? Probably not? Its goodwill seems terrible, a small minority love it irrationally, a bigger minority hates it irrationality, and the rest are going to get the best deal they can - and that doesn't allow for high margins without way more quality than Tesla gives.
Tesla as a car charging station/battery supplier might have a lot of value, but I think that ship is quickly sailing away because the other manufacturers don't want it.
Plot the P/E ratio
😉
Granted, current price should reflect anticipated future earnings...but still...
There are reports that people are having trouble getting on to Twitter. Musk texts that it works for him....
https://www.cnn.com/2022/12/28/business/twitter-down-elon-musk-hnk-intl/index.html
The Guardian reports that Musk later tweeted that they were doing work on the backend servers...
https://www.theguardian.com/technology/2022/dec/29/twitter-users-report-global-outage-with-many-unable-to-log-into-website-or-app
Doing work on backend servers should generally not result in user visible downtime.
Tesla still has nearly double the market cap of Toyota and more than the combined market cap of the four big German manufacturers (Porsche, BMW, Volkswagen, Mercedes-Benz). No other company is buying them out anytime soon.
Tesla became a meme stock because of Musk. As Musk self-immolates, Tesla's grotesquely over-inflated stock price follows. This is hardly mysterious to anyone not named 'Kevin.'
In that vein, consider Dr Krugman's observation that, at this point, he wouldn't trust Elon Musk to feed his cat.
All the normal reasons have been given, so let me throw something else into the mix for discussion.
Who wants to sell all their Tesla stock to get quick cash?
Who was using Tesla stock, and perhaps other things like that, as a piggy-bank?
Russia is fighting a very expensive war in Ukraine. We've seen some of their oligarchs and their families killed off and the government "inherited" their wealth. Is that another piggy-bank distributed around the globe?
Maybe Putin is just making cash withdrawals from his piggy-banks, breaking some, to fund his war.
What would that mean for something like Tesla stock, if this theory is true, it means they go down down down until the stockholder has sold all they want. What would it mean for Tesla the car company? It probably doesn't mean a lot because at some point the company's real worth would cause other people to invest in it. Then we might see its true value in today's EV and car markets.
When I look at recent actions of Musk in light of this theory, it makes some sense. Put a huge plant in China and how is Putin going to extract value from that? Buy Twitter and how could Putin get value from Musk when he's worth a lot less and it isn't in Tesla stock. This isn't divestment so much as shifting assets the way lots of stock market players position their assets when the sky is falling.
And what happens to Musk and Tesla after the war in Ukraine is over? Does it skyrocket? Does it stay flat? Who knows.
It's just an imaginative theory, but think about it.
Speculators.
For kicks, you should plot the timestamps of Musk's tweets. Maybe that'll shed some light on his mental state.
I just want to note that more EVs were produced in China this year than the resty of the world combined. They may never becomew big in the US and Western Europe but will dominate the rest of the world unless established manufacturers (including Tesla) start producing truely low cost EVs.
Tesla has shown a distinct inability to produce anything other than luxury vehicles. The affordable version of the Model 3 was impossible to get when it existed and was quietly deleted from the lineup several years ago. I think it was sold at a loss as a way of making good on Musk's promise of affordability. Same thing will hapen to the Cybertruck (assuming anybody can ever buy it).
Probably the Indian car companies will give China serious competition at the very low end of the market, while VW seems well placed to compete in the regular "economy" part of the market.
You do realize that most of the EVs produced in China are Teslas, right?
What are the red and green bars?
You should be ashamed of yourself, Kevin. No numbers, nothing about context, just "here's a graph of the stock price". And then you draw conclusions from... complete ignorance.
The only real mystery here is how Tesla keeps growing vehicle deliveries at 50% per year compounded. It's astounding! Not to mention its outlandish profit margins and other businesses (energy, insurance, etc.) growing as well.
Regards,
Jon